Pages

Wednesday, January 24, 2018

The little things become the big things

Our society tries to
convince you that it’s perfectly normal to spend as much money as you
earn.It’s considered routine to upgrade
your lifestyle as your income improves.And it’s not uncommon for people of all incomes to end up living
paycheck to paycheck.Poor financial
choices can progressively lead you towards a lifetime of poor wealth.

You don’t have to
get stuck in this sick cycle of spending everything that you earn,
necessitating a lifetime of working for a paycheck.There is a way to break free.

“Cutting your spending rate is
much more powerful than increasing your income.
The reason is that every permanent drop in your spending has a double
effect: it increases the amount of money you have left over to save each month
and it permanently decreases the amount you’ll need every month for the rest of
your life.”- Mr.
Money Mustache

To many people in
today’s consumer society, it may feel like saving money is about depriving
yourself of the things that you want.To
me, saving money is about gaining freedom.Financial problems can be a huge
source of stress.It’s also one of the
leading causes of divorce.

Having a sufficient
amount of money saved can be liberating.A financial emergency or setback can either be devastating, or it can be
just an annoyance.Not wanting something
is just as good as having it.

Pursuing financial freedom is a goal for my family. Life is too short to spend all of my time away from them.

Focus on the
big wins first
When people come to me asking for advice on how to save more money, I always start
by recommending that they first focus on their biggest expenses.Housing,
transportation, and food generally have the highest costs.Cutting those expenses yields the biggest
payoff.

You can save some
money by cutting back on your daily Starbucks, however you can improve your
finances much more if you get rid of your car payment.The average
car payment in the United States is $479
a month, and the average car loan term is 68 months (longer than 5 and a
half years)!If you can pay off the car loan,
you can save an extra $479 a month.Better
yet, ditch the car and drive a cheap and reliable used vehicle.Paying for a new car every few years can
really put a drag on your wealth accumulation.

Improving
your finances little by little

Ideally, you want to
focus on saving on both the large and small expenses in your life.After focusing on your biggest expenses,
making small reductions in your discretionary spending can make a huge
difference.Remember that frugality
is a muscle that gets stronger over time with every good financial decision
you make.

In our household, we are constantly working on
ways to improve our finances.Saving and
investing has become pretty routine and boring for us.But it wasn’t always this way.We used to live for the next paycheck so we
could spend it.Now we look forward to
the next paycheck so we can invest more money.

Expenses
that we have reduced or cut out

I get all of my haircuts
at home.My
wife has been cutting my hair since 2013, and this week I decided to try to
do it myself.I did pretty well on
cutting my hair on the sides and top, but I had difficulty cutting the hair on
the back of my head.My wife had to help
me clean up my backside.This saves me
at least $50 a month in haircuts.

Many years ago, we started eating
IN for lunch instead of going out.Bringing
our lunch into the office during the work week saves $7 per day in expenses,
not counting time and fuel costs. This
saves $140 a month, hours of time
driving to get food, and reduces gas and vehicle wear.

We do not subscribe to cable or satellite television.We stream Netflix and Amazon Prime videos
with our Roku.The average cable bill for Americans is $100 a month.

We do not dry cleaning any of our regular clothing.We simply use a clothing steamer to get the wrinkles out.I used to spend $75 a month on getting my dress shirts and slacks dry cleaned.

We don’t pay for our daily coffee or lattes.We make our own coffee and lattes at home.While at work, we drink the free coffee
provided by the office.This saves us $4
a day, or about $120 a month.

We do our dog grooming at home.Abby
gets a haircut once a month.She gets
her nails trimmed once every 2 weeks.She gets her teeth brushed every other day.She gets a bath once a month.On Abby’s last vet checkup, she was told that
her teeth look pristine for a 4 year old.Sadly, many small dogs suffer from gum disease and chronic pain in their
teeth – not to mention stinky breath.Unchecked gum disease in dogs can increase their risk for heart, kidney
and liver disease.This saves us at
least $40 a month.

Let’s add up everything
from above.That’s $525 saved a month,
or $6,300a year!Invest this amount
yearly for 30 years compounded
at 7%, and you will have $684,717.37! That’s enough to have a lean retirement.

Things we have
never considered spending money on

My wife has never
gone for a manicure or pedicure; she does it herself at home.I know people who pay for these services
every 2 weeks.

We have never hired a housekeeper.It’s
pretty easy to clean up after ourselves and we wouldn’t think of hiring out for
it.I don’t want to be so lazy that I
need someone to clean up after me.Plus,
I would hate to have our children grow up without knowing the basic struggles
of keeping a home clean.What kind of
example would we be setting for our children if they grow up knowing that they
can always pay someone to clean up after their mess?We know people who pay for housekeeping
services every month.Strange thing is
that many of them always complain about needing to tidy up and clean up the
place, so it doesn’t look too messy when the housekeepers arrive.It boggles the mind.We listen to podcasts when we are cleaning
and it feels like we are getting more than one thing done at a time.

Since we now have 2
children at home, many of our friends ask why we don’t hire a nanny.I know friends who have live in nannies that
help prepare food, bathe the children, change diapers, and clean the house.When we are home, we can take care of our own
children.While things can get hectic at
times, it’s manageable.We send our
toddler to daycare, where he gets to socialize with other kids his age.His sister will also start attending daycare
when she turns 6 months old and my wife returns to work.

We try to avoid all monthly subscriptions.Nowadays there is a monthly subscription for everything from shavers to
dog treats to clothing outfits.Every
company is trying to get a piece of your money.Instead of subscribing to pay for monthly services, consider paying a la
carte when you actually need a service.After a few months, you can determine whether it really makes sense to
subscribe or not.One thing we do pay
for is Netflix, which runs $10.99.To
keep things easy, I just buy a Netflix gift card at Staples, earn 5x on the
purchase with my Chase Ink Cash card, and then load our Netflix account.

We try to avoid
buying random crap.Everywhere you look,
you will find random trinkets and knick knacks for sale.We used to buy fun looking souvenirs from
gift shops of places that we have visited.We would also buy random decorations for our home.Now we try to avoid making purchases that
usually end up gathering dust and cluttering up our home.

Ways we save
on purchases

We love travel
hacking with credit
cards.With a combination of normal
spending and and sign up bonuses, we earn enough points to cover most of our
flight and hotel expenses.This way, we
never have to worry about saving up for our next vacation.Our points accrue automatically.While this may change in the future, we are
enjoying travel hacking for now.Free
travel allows us to continue to save and have fun along the way.

Cathay Pacific First Class: where each seat can comfortably fit two.

When it comes to furniture, we always try to buy used from Craigslist, Facebook
Marketplace, Nextdoor, Letgo, 5miles, and OfferUp.We recently purchased this great IKEA
bookshelf for $10 from someone on Nextdoor.

Bottom line

Good habits with your
money and health can easily start to compound over time.We didn’t start saving 50% of our income overnight.It took several years to get to a 50% savings
rate.We started by reducing our biggest
expenses, such as our car insurance.Then we started looking at our smaller expenses.One by one, we tried to see which expenses we
could cut out completely (such as paying for a barber to cut my hair) or
reduce.Look for things in your life
that you can focus on improving, even if it’s just a 1 percent
improvement.While individually, these
small changes may not seem like much, the compounding effect of these decisions
over time can add up to make a powerful impact.Good money habits build upon each other and lead to better financial
decisions.Next thing you know, saving
and investing will come naturally.

We still have plenty
of room for improvement.I recently
cleaned out a pantry of expired food and we still occasionally have to throw
out uneaten food that has gone bad.This
year, our big focus is getting our grocery spending down, and not letting food
go to waste.

Always take action,
even if the actions seem tiny.On your
journey towards financial freedom, small things added up eventually become the
big things.